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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 98 posts by R. Eric Hacker.
Delaware Supreme Court Permits Substitution of Bankruptcy Trustee as Plaintiff to Resolve “Procedural Conundrum”
Lenois v. Lawal, No. 33, 2021 (Del. Dec. 9, 2021)
A company’s bankruptcy filing during an appeal of a dismissal of a derivative action presents questions of who, if anyone, has the standing to pursue the company’s potential claims. As this case shows, Delaware is loathe to permit such claims to abate merely because the procedural path forward is unclear. More ›
Non-Resident Asset Managers Found Not To Be “Acting Managers” Subject To Personal Jurisdiction Under Delaware LLC Act
Dlayal Holdings, Inc. v. Gracey, C.A. 2020-1070-LWW (Del. Ch. Dec. 27, 2021)
Under 6 Del. C. § 18-109(a), serving as the manager of a Delaware LLC constitutes consent to be served through the company’s registered agent for all Delaware proceedings “involving or relating to the [company’s] business ... or a violation by the manager ... of a duty” to the company or its members. By its terms, the statute applies not only to formal managers identified in the company’s governing documents but also to acting managers – that is, persons who “participate[] materially in the management” of the company. This case clarifies what constitutes material participation under § 18-109(a). More ›
Chancery Dismisses Derivative Action Based On Alleged Liability Under DGCL § 174 For Stock Repurchases and Dividends
In re The Chemours Co. Deriv. Litig., C.A. 2020-0786-SG (Del. Ch. Nov. 1, 2021)
Broadly speaking, Sections 160 and 173 of the DGCL prohibit a corporation from repurchasing stock or issuing dividends if doing so would exceed the corporation’s surplus. Both Sections 160 and 173 are enforceable under Section 174, which provides that directors “under whose administration” a “willful or negligent” violation of Section 160 or 173 occurs are “jointly and severally liable” to the corporation. Here, the Court of Chancery rejected a challenge to dividend and stock repurchases premised upon directors’ alleged incorrect assessment of potential environmental liabilities. More ›
Chancery Awards $9.5 Million Mootness Fee for Reduction of Voting Control and Other Benefits
Hollywood Firefighters Pension Fund v. Malone, C.A. 220-0880-SG (Nov. 8, 2021)
A plaintiff may be entitled to a mootness fee if it shows that its action had merit and produced a corporate benefit. This case outlines the Court of Chancery’s analysis in valuing non-monetary benefits and, in turn, the appropriate mootness fee. More ›
In Recent Facebook Decisions, Chancery Permits Demand-Futility Plaintiffs to Proceed Before Demand-Refused Plaintiff
Feuer v. Zuckerberg, C.A. No. 2019-0324-JRS & In re Facebook, Inc. Deriv. Litig., Consol. C.A. 2018-0307 (Del. Ch. Oct. 5, 2021), rearg. denied (Del. Ch. Nov. 8, 2021).
Recent decisions in the Facebook derivative litigation addressed issues of case management where competing groups of derivative plaintiffs disagree about whether making a pre-litigation demand upon the board was futile, and where disputes are raised about whether the suits should be consolidated, and which theories should proceed first. More ›
Chancery Examines Cornerstone Standard for Establishing Non-Exculpated Fiduciary Duty Claims
In Re BGC Partners, Inc. Derivative Litigation, Consol. C.A. No. 2018-0722-LWW (Del. Ch. Sep. 20, 2021)
A director protected by an exculpatory provision is entitled to dismissal in a breach of fiduciary duty action unless the plaintiff advances a non-exculpated claim. Under In re Cornerstone Therapeutics Inc. Shareholder Litigation, 115 A.3d 1173 (Del. 2015), to establish a non-exculpated claim plaintiff must show that a director: (1) “harbored self-interest adverse to the stockholders’ interests”; (2) “acted to advance the self-interest of an interested party from whom they could not be presumed to act independently”; or (3) “acted in bad faith.” This decision explains Cornerstone’s second prong. More ›
Chancery Addresses When an Efforts Clause-Based Earnout Claim May Ripen
S’holder Representative Servs., LLC v. Alexion Pharm., Inc., C.A. No. 2020-1069-MTZ (Del. Ch. Sep. 1, 2021)
Mergers and sale agreements frequently include earn-out provisions that entitle one party to future compensation if certain business or financial goals are met within a defined period. In return, the other party often must use a defined level of effort—such as “commercially reasonable” efforts—to achieve the goals that trigger the earn-out. This case addresses a practical threshold question: If the party entitled to the earn-out believes that the other party has breached its duty to use commercially reasonable efforts, may that party sue immediately, or must that party wait until the earn-out period ends? More ›
Chancery Enforces Parties’ Merger Agreement That Barred Claims Upon Termination of the Agreement
Yatra Online, Inc. v. Ebix, Inc., C.A. No. 2020-0444-JRS (Del. Ch. Aug. 30, 2021)
Agreements frequently specify how the termination of the agreement affects the parties’ rights and obligations. This case illustrates that Delaware courts generally enforce “effect of termination” provisions in merger agreements as readily as any other contract provision. More ›
Company Did Not Breach Mandatory Redemption Provision Where Special Committee Determined Company Lacked Funds To Redeem All Preferred Shares
Cont’l Investors Fund LLC v. TradingScreen, Inc., C.A. No. 10164-VCL (Del. Ch. July 23, 2021)
A holder of preferred stock often possesses redemption rights that permit the stockholder to require a company to repurchase the stockholder’s shares. But what happens if the company determines that it lacks the funds to repurchase the stock? As illustrated in this case, a stockholder challenging the determination bears the burden of proof to show that the company’s determination was improper. More ›
Chancery Permits Service By Email Upon Singaporean Defendants
Skye Mineral Investors, LLC v. DXS Capital (U.S.) Ltd., C.A. No. 2018-0059-JRS (Del. Ch. Jul. 15, 2021).
Delaware’s long-arm statute permits service of process on a foreign defendant by personal service, by mail with signed return receipt, by means authorized by the foreign jurisdiction where service is to occur, or “[a]s directed by a court.” 10 Del. C. § 3104(d). In this decision, the Court of Chancery confirms that each of the grounds is an independent basis for effecting service, and alternative methods of service are appropriate so long as they are “reasonably calculated to give actual notice.” More ›
Chancery Explains Pleading Standard and Sustains Unjust Enrichment Claim Related to Plaintiff’s Forfeiture of LLC Acquisition Rights
Angel v. Warrior Met Coal, Inc., C.A. No. 2019-0235-SG (Del. Ch. Jun. 30, 2021)
Under Delaware’s notice pleading standard, a plaintiff’s claim will survive a motion to dismiss if it is “reasonably conceivable” that the plaintiff might prevail. The Court here explained that test is whether a “claim’s success seems possible to a rational objective observer.” Notwithstanding this plaintiff-friendly standard, Delaware courts will dismiss a claim if a plaintiff fails to plead all necessary elements. More ›
Chancery Finds Breach of Fiduciary Duty Where Defendant Resorted to Extra-Contractual Self-Help
Macrophage Therapeutics, Inc. v. Goldberg, C.A. No. 2019-0137-JRS (Del. Ch. Jun. 23, 2021) (Post-trial Memorandum Opinion)
Macrophage Therapeutics, Inc. v. Goldberg, C.A. No. 2019-0137-JRS (Del. Ch. Jun. 23, 2021) (Letter Opinion)
Delaware law provides several remedies for a party who believes that a contractual breach has occurred. But extra-contractual self-help is usually not one. As this case demonstrates, the choice to seek direct retribution, rather than legal recourse, may constitute a breach of a director’s duty of loyalty. A related decision also considered and rejected the argument that formal board authorization was needed for a corporation to commence litigation. More ›
Chancery Rejects Plaintiff’s Attempt to Recharacterize Pre-Suit Demands
The Raj & Sonal Abhyanker Fam. Tr. v. Blake, C.A. No. 2020-0521-KSJM (June 17, 2021)
Court of Chancery Rule 23.1 presents a would-be derivative plaintiff with two exclusive options: make a pre-suit demand on the board to bring the claims at issue, or bring the claims and plead demand futility. A stockholder who elects to make a demand on the board may challenge whether the board wrongly refused the demand, but the stockholder cannot later bring suit and allege demand futility. And, as this case shows, the Court of Chancery will scrutinize a stockholder’s attempt to circumvent this restriction. More ›
Chancery Dismisses Simultaneously-Filed Delaware Action in Favor of New Jersey Action
Sweeney v. RPD Holdgs. Grp., LLC, C.A. No. 2020-0813-SG (Del. Ch. May 27, 2021)
Delaware’s forum non conveniens jurisprudence typically turns on when parties file competing actions. Under Cryo-Maid’s “overwhelming hardship” standard, a defendant seeking to stay a first-filed Delaware action in favor of litigation elsewhere must show that the six so-called Cryo-Maid factors tip overwhelmingly in the defendant’s favor. By contrast, under McWane’s less onerous discretionary standard, a defendant seeking to stay a later-filed Delaware action often succeeds if the defendant can point to foreign litigation between the same parties in a forum that can do prompt and complete justice. More ›
Chancery Clarifies When Related Agreements Will Be Construed Together
Murphy Marine Services of Delaware, Inc. v. GT USA Wilmington, LLC (Del. Ch. May 28, 2021)
When interpreting a contract, Delaware courts generally stick to the four corners of the agreement at issue. One exception is when a contract is part of a set of inseparable agreements. In that situation, courts may construe all the agreements together as a whole. But, as seen here, the exception may not apply if the contract at issue independently effectuates the parties’ intent and does not expressly incorporate the other. More ›